SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
Commission File Number 33-82034
INDIANTOWN COGENERATION, L.P. (Exact name of co-registrant as
specified in its charter)
Delaware 52-1722490 (State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
INDIANTOWN COGENERATION FUNDING CORPORATION (Exact name of
co-registrant as specified in its charter)
Delaware 52-1889595 (State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7500 Old Georgetown Road, 13th Floor Bethesda, Maryland 20814-6161
(Registrants' address of principal executive offices)
(301)-718-6800 (Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. [ X ] Yes [ ] No
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Indiantown Cogeneration, L.P. Indiantown Cogeneration Funding
Corporation
PART I FINANCIAL INFORMATION Page No.
Item 1 Financial Statements: Consolidated Balance Sheets as of
March 31, 1999 (Unaudited) and December 31,
1998......................................................1
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 (Unaudited) and March 31, 1998
(Unaudited)...............................................3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 (Unaudited) and March 31, 1998
(Unaudited)...............................................4
Notes to Consolidated Financial Statements (Unaudited)....5
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................9
PART II OTHER INFORMATION
Item 1 Legal
Proceedings..................................................16
Item 5 Other
Information..................................................16
Item 6 Exhibits and Reports on Form
8-K..........................................................18
Signatures...................................................21
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PART I
FINANCIAL INFORMATION
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of March 31, 1999 and December 31, 1998
<S> <C> <C>
ASSETS March 31, 1999 December 31, 1998
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,175,535 $ 2,419,089
Accounts receivable-trade 11,503,654 12,369,594
Inventories 681,672 940,125
Prepaids 1,070,615 736,700
Deposits 44,000 44,000
Investments held by
Trustee, including
restricted funds of
$19,108,590 and
$2,718,549, respectively 26,553,355 2,770,774
Total current assets 42,028,831 19,280,282
INVESTMENTS HELD BY TRUSTEE,
restricted funds 14,050,644 14,001,428
DEPOSITS 75,000 75,000
PROPERTY, PLANT & EQUIPMENT:
Land 8,582,364 8,582,363
Electric and steam generating
facilities 696,385,353 695,929,380
Less accumulated depreciation (54,231,068) (50,323,285)
Net property, plant & equipment 650,736,649 654,188,458
FUEL RESERVE 1,619,502 3,428,403
DEFERRED FINANCING COSTS, net of
accumulated amortization of
$43,230,421 and $43,020,796,
respectively 16,956,495 17,166,120
Total assets $ 725,467,121 $ 708,139,691
<FN>
The accompanying notes are an integral part of these consolidated
balance sheets.
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<CAPTION>
Indiantown Cogeneration, L. P.
Consolidated Balance Sheets
As of March 31, 1999 and December 31, 1998
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL March 31, 1999 December 31, 1998
(Unaudited)
CURRENT LIABILITIES:
Accrued payables/liabilities $ 4,370,993 $ 7,405,610
Accrued interest 16,114,340 2,302,048
Current portion - First
Mortgage Bonds 9,997,000 9,997,000
Current portion lease
payable - railcars 292,275 287,048
Total current liabilities 30,774,608 19,991,706
LONG TERM DEBT:
First Mortgage Bonds 466,242,000 466,242,000
Tax Exempt Facility Revenue Bonds 125,010,000 125,010,000
Lease payable - railcars 4,508,641 4,583,699
Total long term debt 595,760,641 595,835,699
Reserve-Major Maintenance 613,951 511,756
Total liabilities 627,149,200 616,339,161
PARTNERS' CAPITAL:
Toyan Enterprises 29,544,537 27,586,061
Palm Power Corporation 9,831,791 9,180,052
TIFD III-Y, Inc. 39,327,169 36,720,212
Indiantown Project
Investment Partnership 19,614,424 18,314,205
Total partners' capital 98,317,921 91,800,530
Total liabilities and partners'
capital $ 725,467,121 $ 708,139,691
<FN>
The accompanying notes are an integral part of these consolidated
balance sheets.
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[/CAPTION]
Indiantown Cogeneration, L.P.
Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and March 31, 1998
<S> <C> <C>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
Operating Revenues: (Unaudited) (Unaudited)
Electric capacity and
capacity bonus revenue $ 30,903,983 $ 30,850,092
Electric energy revenue 4,818,398 6,220,651
Steam revenue 28,634 72,810
Total operating revenues 35,751,015 37,143,553
Cost of Sales:
Fuel and ash 5,320,617 7,297,454
Operating and maintenance 3,332,264 4,399,708
Depreciation 3,907,783 3,774,640
Total cost of sales 12,560,664 15,471,802
Gross Profit 23,190,351 21,671,751
Other Operating Expenses:
General and administrative 982,748 677,962
Insurance and taxes 1,658,650 1,687,626
Total other operating expenses 2,641,398 2,365,588
Operating Income 20,548,953 19,306,163
Non-Operating Income (Expenses):
Interest expense (14,422,744) (14,726,001)
Interest/Other income 391,183 600,622
Net non-operating expense (14,031,561) (14,125,379)
Net Income $ 6,517,392 $ 5,180,784
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
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<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
<S> <C> <C>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,517,392 $ 5,180,784
Adjustments to reconcile
net income to net
cash provided by operating
activities:
Depreciation and amortization 4,117,408 3,973,852
Decrease in accounts receivable 865,940 1,691,627
Decrease in inventories and
fuel reserves 2,067,354 374,672
(Increase) Decrease in deposits
and prepaids (333,915) 586,697
Increase in accounts payable,
accrued liabilities and
accrued interest 10,777,675 14,219,816
Increase in major maintenance
reserve 102,195 45,452
Decrease in lease payable (69,831) (64,968)
Net cash provided by operating
activities 24,044,218 26,007,932
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant
& equipment (455,975) (278,562)
Increase in investment held
by trustee (23,831,797) (25,896,296)
Net cash used in investing
activities (24,287,772) (26,174,858)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of bonds -0- -0-
Capital distributions -0- -0-
Net cash used in financing
activities -0- -0-
CHANGE IN CASH AND CASH
EQUIVALENTS (243,554) (166,926)
CASH and CASH EQUIVALENTS,
beginning of year 2,419,089 3,234,379
CASH and CASH EQUIVALENTS,
end of period $ 2,175,535 $ 3,067,453
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
4
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Indiantown Cogeneration, L.P.
Notes to Consolidated Financial Statements As of March 31,1999
(Unaudited)
1. ORGANIZATION AND BUSINESS: Indiantown Cogeneration, L.P. (the
"Partnership") is a special purpose Delaware limited partnership
formed on October 4, 1991. The general partners are Indiantown
Project Investment Partnership, L.P., a Delaware limited partnership
("IPILP") and Palm Power Corporation ("Palm"), a Delaware
corporation and a special purpose indirect subsidiary of Cogentrix
Energy, Inc. ("Cogentrix"). The limited partners are TIFD III-Y,
Inc. ("TIFD"), a special purpose indirect subsidiary of General
Electric Capital Corporation ("GECC") and Toyan Enterprises
("Toyan"), a California corporation and wholly-owned subsidiary of
U.S. Generating Company, LLC, hereafter referred to collectively as
the "Partners". Recent changes to the ownership structure of the
Partnership are detailed below. During 1994, the Partnership formed
its sole, wholly owned subsidiary, Indiantown Cogeneration Funding
Corporation ("ICL Funding"), to act as agent for, and co-issuer
with, the Partnership in accordance with the 1994 bond offering
discussed in Note 4. ICL Funding has no separate operations and has
only $100 in assets and capitalization.
The Partnership was formed to develop, construct, and operate an
approximately 330 megawatt (net) pulverized coal-fired cogeneration
facility (the "Facility") located on an approximately 240 acre site
in southwestern Martin County, Florida. The Facility produces
electricity for sale to Florida Power & Light Company ("FPL") and
supplies steam to Caulkins Indiantown Citrus Co. ("Caulkins") for
its plant located near the Facility.
The Partnership is managed by U.S. Generating Company ("USGen")
pursuant to a Management Services Agreement (the "MSA"). The
Facility is operated by U.S. Operating Services Company ("USOSC")
pursuant to an Operation and Maintenance Agreement (the "O&M
Agreement"). USGen and USOSC are general partnerships originally
formed between affiliates of PG&E Enterprises and Bechtel
Enterprises, Inc. On September 19, 1997, USGen and USOSC each
separately redeemed Bechtel Enterprises, Inc.'s interests in USGen
and USOSC so that U.S. Generating Company, LLC now indirectly owns
all of the interests in USGen and USOSC. This will not affect
USGen's obligations under the MSA or USOSC's obligations under the
O&M Agreement. Also on September 19, 1997, Toyan purchased 16.67%
of Palm's interest in the Partnership, which represents a 2%
ownership in the Partnership.
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On August 21, 1998, Toyan consummated the transactions contemplated
in the Purchase Agreement dated as of May 29, 1998, with DCC Project
Finance Twelve, Inc. ("PFT"), whereby PFT formed IPILP with Toyan.
IPILP became a new general partner in the Partnership by acquiring a
19.95% interest in the Partnership from Toyan. Prior to the PFT
transaction, Toyan converted its remaining partnership interest from
a general partnership interest into a limited partnership interest
such that Toyan now directly holds only a limited partnership
interest in the Partnership. Separately, Bechtel Generating
Company, Inc. ("Bechtel Generating"), a subsidiary of Bechtel
Enterprises, Inc. entered into a Purchase Agreement with Cogentrix
whereby a wholly owned subsidiary of Cogentrix purchased from
Bechtel Generating, on October 20, 1998, among other things, 100% of
the stock of Palm. Palm holds a 10% interest in the Partnership.
In addition, on November 23, 1998, Toyan transferred a 50% interest
in IPILP to PFT such that PFT o wns 75.188% of IPILP representing a
15% interest in the Partnership.
The net profits and losses of the Partnership are allocated to
Toyan, Palm, TIFD and, if applicable, IPILP based on the following
ownership percentages:
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<C> <C> <C>
As of As of As of
September 20, 1997 August 21, 1998 October 20, 1998
Toyan 50% 30.05% 30.05%
Palm 10% 10% 10%*
IPILP -- 19.95%** 19.95%**
TIFD 40% 40% 40%
* Now beneficially owned by Cogentrix. ** PFT's beneficial
ownership in the Partnership through IPILP was equal to 10% as of
August 21, 1998, and 15% as of November 23, 1998.
The changes in ownership as a result of the consummated PFT
transactions were the subject of notices of self-recertification of
Qualifying Facility status filed by the Partnership with the Federal
Energy Regulatory Commission on August 20, 1998 and November 16,
1998. The Cogentrix transaction was the subject of a similar
filing.
All distributions other than liquidating distributions will be made
based on the Partners' percentage interest as shown above, in
accordance with the project documents and at such times and in such
amounts as the Board of Control of the Partnership determines.
The Partnership was in the development stage through December 21,
1995 and commenced commercial operations on December 22, 1995 (the
"Commercial Operation Date"). The original partners contributed,
pursuant to an equity commitment agreement, approximately
$140,000,000 of equity when commercial operation of the Facility
commenced in December 1995. The Partnership's continued existence
is dependent on the ability of the Partnership to sustain successful
operations. Management of the Partnership is of the opinion that
the assets of the Partnership are realizable at their current
carrying value.
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2. FINANCIAL STATEMENTS:
The consolidated balance sheets as of March 31, 1999, and the
consolidated statements of operations and cash flows for the three
months ended March 31, 1999 and 1998, have been prepared by the
Partnership, without audit and in accordance with the rules and
regulations of the Securities and Exchange Commission. In the
opinion of management, these financial statements include all
adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position of the
Partnership as of March 31, 1999, and the results of operations and
cash flows for the three months ended March 31, 1999 and 1998.
The financial statements and related notes contained herein should
be read in conjunction with the Partnership's Annual Report on Form
10-K for the year ended December 31, 1998.
Investments Held by Trustee The investments held by trustee
represent bond and equity proceeds and revenue funds held by a bond
trustee/disbursement agent and are carried at cost, which
approximates market. All funds are invested in either Nations
Treasury Fund-Class A or other permitted investments for longer
periods. The Partnership also maintains restricted investments
covering a portion of the Partnership's debt as required by the
financing documents. The proceeds include $12,501,000 of restricted
tax-exempt debt service reserve required by the financing documents
and are classified as a noncurrent asset on the accompanying balance
sheets. The Partnership maintains restricted investments covering a
portion of debt principal and interest payable, as required by the
financing documents. These investments are classified as current
assets in the accompanying consolidated balance sheets. A
qualifying facility ("QF") reserve of $1.5 million is also held in
long term assets in the accompanying balance sheets. Property,
Plant and Equipment Property, plant and equipment, which consist
primarily of the Facility, are recorded at actual cost. The
Facility is depreciated on a straight-line basis over 35 years, with
a residual value on the Facility approximating 25 percent of the
gross Facility costs.
Other property and equipment are depreciated on a straight-line
basis over the estimated economic or service lives of the respective
assets (ranging from five to seven years). Routine maintenance and
repairs are charged to expense as incurred.
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3. DEPOSITS:
In 1991, in accordance with a contract between the Partnership and
Martin County, the Partnership provided Martin County with a
security deposit in the amount of $149,357 to secure installation
and maintenance of required landscaping materials. In January 1998,
the Partnership received a refund of funds in excess of the required
deposit as security for the first year maintenance as set forth in
the contract between the Partnership and Martin County. The
remaining deposit in the amount of $39,804 was included in current
assets in the consolidated balance sheet as of December 31, 1997.
These funds were returned in September 1998 when the Partnership
submitted a surety bond for the refund amount.
In 1991, in accordance with the Planned Unit Development Zoning
Agreement between the Partnership and Martin County, the Partnership
deposited $1,000,000 in trust with the Board of County Commissioners
of Martin County (the "PUD Trustee"). Income from this trust will
be used solely for projects benefiting the community of Indiantown.
On July 23, 2025, the PUD Trustee is required to return the deposit
to the Partnership. As of March 31, 1999 and December 31, 1998,
estimated present values of this deposit was $75,000. The remaining
balance has been included in property plant, and equipment as part
of total construction expenses.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Partnership and the notes
thereto included elsewhere in this report.
General
The Partnership is primarily engaged in the ownership and operation
of a non-utility electric generating facility. From its inception
and until December 21, 1995, the Partnership was in the development
stage and had no operating revenues or expenses. On December 22,
1995 the Facility commenced commercial operation. As of March 31,
1999, the Partnership had approximately $651 million of property,
plant and equipment (net of accumulated depreciation) consisting
primarily of purchased equipment, construction-related labor and
materials, interest during construction, financing costs, and other
costs directly associated with the construction of the Facility.
For the three months ended March 31, 1999, the Partnership had total
operating revenues of approximately $35.7 million, total operating
costs of $15.2 million, and total net interest expenses of
approximately $14.0 million resulting in net income of approximately
$6.5 million.
The Partnership has obtained all material environmental permits and
approvals required as of March 31, 1999, for the operation of the
Facility. Certain of these permits and approvals are subject to
periodic renewal. Certain additional permits and
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approvals will be
required in the future for the continued operation of the Facility.
The Partnership is not presently aware of any technical
circumstances that would prevent the issuance of such permits and
approvals or the renewal of currently existing permits.
The Partnership timely filed its application for a Title V air
permit on May 24, 1996. A draft permit has been issued by the
Florida Department of Environmental Protection. The Partnership
provided comments on the permit and a final permit is expected by
the end of May.
Results of Operations
For the three months ending March 31, 1999 and 1998, the Facility
achieved an average Capacity Billing Factor of 101.64% and 101.04%,
respectively. This resulted in earning monthly capacity payments
aggregating $28.1 million and bonuses aggregating $2.8 million for
each of three month periods ended March 31, 1999 and 1998. The
Capacity Billing Factor measures the overall availability of the
Facility, but gives a heavier weighting to on-peak availability.
During the three months ended March 31, 1999, the Facility was
dispatched by FPL and generated 208,484 megawatt-hours compared to
261,635 megawatt-hours during the same period in 1998. The decrease
was due to mild winter weather and the refusal of FPL to reconnect
the Facility to the distribution grid for nineteen days in March
1999 (see Legal Proceedings below). The monthly dispatch rate for
the first three months of 1999 ranged from 18% to 35%, as compared
to a range of 35% to 51% for the corresponding period in 1998.
Net income for the three months ended March 31, 1999, was
approximately $6.5 million compared to the net income of
approximately $5.2 million for the corresponding period in the prior
year. The $1.3 million increase is primarily attributable to a
lower fuel cost of $0.6 million, lower Operations and Maintenance
costs of $1 million due to lower routine maintenance and material
costs, and fewer spare parts purchases offset by higher General and
Administrative costs of $305,000 for addressing year 2000 issues and
for operations and administrative support.
Electric Energy Revenues
For the three months ended
March 31, 1999 March 31, 1998
Revenues $ 35.7 million $ 37.1 million
KWhs 208.5 261.6 Average
Capacity Billing Factor 101.64% 101.04%
Average Dispatch Rate 29.56% 40.67%
For the three months ended March 31, 1999, the Partnership had total
operating revenues of approximately $35.7 million as compared to
$37.1 million for the corresponding period in the prior year. The
$1.4 million decrease in operating revenue is primarily due to lower
energy revenue resulting from lower dispatch by FPL.
9
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Costs of revenues for the three months ended March 31, 1999, were
approximately $12.6 million on sales of 208,484 MWhs as compared to
$15.5 million on sales of 261,635 MWhs for the corresponding period
in the prior year. This decrease is largely attributable to a $2.0
million decrease in fuel and ash disposal costs resulting from lower
dispatch and new ash disposal arrangements, a $0.1 million increase
in depreciation, and a $1.0 million decrease in operating and
maintenance costs resulting from lower than expected maintenance and
materials purchases and contract labor.
Total other operating expenses for the three months ended March 31,
1999, were approximately $2.6 million compared to the $2.4 million
of total other operating expenses for the corresponding period in
the prior year. The $0.2 million increase is due to higher general
and administrative expenses to address the year 2000 system issues
and additional corporate support.
Net interest expense for the three months ended March 31, 1999, of
approximately $14.0 million compared to $14.1 million of net
interest expense for the same period in the prior year. The $0.1
million decrease was caused by a decrease in interest expense due to
the maturity of Series A-5 and A-6 of the First Mortgage Bonds.
Liquidity and Capital Resources
On November 22, 1994 the Partnership and ICL Funding issued first
mortgage bonds in an aggregate principal amount of $505 million (the
"First Mortgage Bonds"), $236.6 million of which bear an average
interest rate of 9.26% and $268.4 million of which bear an interest
rate of 9.77%. Concurrently with the Partnership's issuance of its
First Mortgage Bonds, the Martin County Industrial Development
Authority issued $113 million of Industrial Development Refunding
Revenue Bonds (Series 1994A) which bear an interest rate of 7.875%
(the "1994A Tax Exempt Bonds"). A second series of tax exempt bonds
(Series 1994B) in the approximate amount of $12 million, which bear
an interest rate of 8.05%, were issued by the Martin County
Industrial Development Authority on December 20, 1994 (the "1994B
Tax Exempt Bonds" and, together with the 1994A Tax Exempt Bonds, the
"1994 Tax Exempt Bonds"). The First Mortgage Bonds and the 1994 Tax
Exempt Bonds are hereinafter collectively referred to as the
"Bonds."
Certain proceeds from the issuance of the First Mortgage Bonds were
used to repay $421 million of the Partnership's indebtedness and
financing fees and expenses incurred in connection with the
development and construction of the Facility and the balance of the
proceeds were deposited in various restricted funds that are being
administered by an independent disbursement agent pursuant to trust
indentures and a disbursement agreement. Funds administered by such
disbursement agent are invested in specified investments. These
funds together with other funds available to the Partnership were
being used: (i) to finance completion of construction, testing, and
initial operation of the Facility; (ii) to finance construction
interest and contingency; and (iii) to provide for initial working
capital.
<10>
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The proceeds of the 1994 Tax Exempt Bonds were used to refund $113
million principal amount of Industrial Development Revenue Bonds
(Series 1992A and Series 1992B) previously issued by the Martin
County Industrial Development Authority for the benefit of the
Partnership, and to fund, in part, a debt service reserve account
for the benefit of the holders of its tax-exempt bonds and to
complete construction of certain portions of the Facility.
The Partnership's total borrowings from inception through March 1999
were $769 million. The equity loan of $139 million was repaid on
December 26, 1995. As ofMarch 31, 1999, the borrowings included
$125 million from the 1994 Tax Exempt Bonds and all of the available
First Mortgage Bond proceeds. The First Mortgage Bonds have matured
as follows:
Series Aggregate Principal Amount Date Matured and Paid
A-1 $4,397,000 June 15, 1996
A-2 4,398,000 December 15, 1996
A-3 4,850,000 June 15, 1997
A-4 4,851,000 December 15, 1997
A-5 5,132,000 June 15, 1998
A-6 5,133,000 December 15, 1998
The weighted average interest rate paid by the Partnership on its
debt for the three months ended March 31, 1999 and 1998, was 9.167%
and 9.171%, respectively.
The Partnership, pursuant to certain of the Project Contracts, is
required to post letters of credit which, in the aggregate, will
have a face amount of no more than $65 million. Certain of these
letters of credit have been issued pursuant to a Letter of Credit
and Reimbursement Agreement with Credit Suisse and the remaining
letters of credit will be issued when required under the Project
Contracts, subject to conditions contained in such Letter of Credit
and Reimbursement Agreement. As of March 31, 1999, no drawings have
been made on any of these letters of credit. The Letter of Credit
and Reimbursement Agreement has a term of seven years subject to
extension at the discretion of the banks party thereto.
The Partnership entered into a debt service reserve letter of credit
and reimbursement agreement, dated as of November 1, 1994, with
Banque Nationale de Paris pursuant to which a debt service reserve
letter of credit in the amount of approximately $60 million was
issued. Such agreement has a rolling term of five years, subject to
extension at the discretion of the banks party thereto. Drawings on
the debt service reserve letter of credit became available on the
Commercial Operation Date of the Facility to pay principal and
interest on the First Mortgage Bonds, the 1994 Tax Exempt Bonds and
interest on any loans created by drawings on such debt service
reserve letter of credit. Cash and other investments held in the
debt service reserve account will be drawn on for the Tax Exempt
Bonds prior to any drawings on the debt service reserve letter of
credit. As of March 31, 1999, no drawings have been made on the
debt service reserve letter of credit.
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In order to provide for the Partnership's working capital needs, the
Partnership entered into a Revolving Credit Agreement with Credit
Suisse dated as of November 1, 1994. Such Agreement has a term of
seven years subject to extension at the discretion of the banks
party thereto. The revolving credit agreement has a maximum
available amount of $15 million and may be drawn on by the
Partnership from time to time. The interest rate is based upon
various short term indices at the Partnership's option and is
determined separately for each draw. As of March 31, 1999, seven
working capital loans had been made to the Partnership under the
working capital loan facility. All working capital loans were
repaid.
Year 2000
The Partnership is, with the assistance of USOSC and USGen,
conducting a review of its computer systems to identify, test where
necessary, and remediate the systems that could be affected by the
new millennium. The year 2000 may pose problems in software
applications because many computer systems and applications
currently use two-digit date fields to designate a year. As the
century date occurs, date sensitive systems may recognize the year
2000 as 1900 or not at all. This potential inability to recognize
or properly treat the year 2000 may cause systems to process
financial or operational information incorrectly. Management has
inventoried those systems which it reasonably believes may be
adversely affected and prioritized them based on the extent of any
potential disruption in operations and the resulting potential
impact on the Partnership's ability to generate and deliver
electricity or steam.
To date, the Partnership has inventoried ninety-one potentially
affected systems, of which forty-eight have been classified as
having the highest priority based upon likelihood and extent of
impact. Among these priority systems is the Facility's Distributed
Control System ("DCS"), which is the primary computerized control
system for the Facility. The manufacturer of the Facility's DCS is
Westinghouse Electric Corporation ("Westinghouse"). Westinghouse
visited the Facility to determine what remediation would be required
for the DCS to be insulated from disruptions due to the year 2000
and installed hardware and software code as required to address the
year 2000 issue. On October 17, 1998, the Partnership conducted a
year 2000 test on the DCS by, among other things, manually resetting
the internal calendar to experience the transition from December 31,
1999 to January 1, 2000. The DCS handled this simulated transition
with no significant interruptions in power production or ordinary
operation. Other system s that have been remediated include the
HART communicators and the Continuous Emissions Monitoring System.
In addition, the Partnership is utilizing a network test environment
developed by the Partnership with support from USGen to test other
information technology systems. This testing is conducted on an
integrated and unit basis. The integrated system test is intended
to replicate the Partnership's typical business processes. The unit
tests supplement the integrated test to evaluate remaining functions
which were not part of the integrated test. The Partnership has
either retired or upgraded all of its computer servers and the
computer for the Turbine Vibration Analysis System has been
replaced. The telephone system was successfully tested.
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Through March 31, 1999, the Partnership spent approximately $405,000
on year 2000 related projects. The Partnership currently estimates
that the completion of its year 2000 efforts will cost approximately
$425,000 (including amounts spent to date), encompassing remediation
and replacement of equipment (including the DCS described above),
the performance of Facility testing, communication with and
evaluation of third party readiness and the development of required
contingency plans. This estimate is based solely upon information
currently available to the Partnership and may be revised as more
information becomes available. The Partnership has no employees and
has been utilizing employees of USGen provided pursuant to the MSA.
In addition, the Partnership recognizes that it is dependent upon
numerous third parties in the conduct of its business. A
significant interruption in services or resources provided by such
third parties could have material adverse financial consequences on
the Partnership. These third parties include those supplying fuel
and other operating supplies, as well as FPL and its ability to
continue to accept the output of the Facility. Therefore, the
Partnership has sent out 187 inquiries to vendors, suppliers,
customers and other businesses seeking information on the status of
such companies' equipment and year 2000 remediation efforts. The
Partnership believes that FPL's preparedness to perform under the
PPA is the most important status of any of these parties. The
Partnership has sent FPL two inquiries with respect to its year 2000
preparedness but has not yet received a response. The Partnership
has also reviewed FPL's internet and securities filings disclosure
on this matter, which have been insufficient for the Partnership to
evaluate FPL's readiness for the year 2000. To date, the other
responses and disclosures have not identified any year 2000 issues
of which the Partnership had been unaware. However, the responses
and disclosures have also not been sufficient to ensure that there
will be no impacts on the Partnership as a result of the year 2000
affecting parties doing business with the Partnership. To the
extent that the Partnership has not gained such adequate assurances,
the Partnership has developed contingency plans to mitigate the
consequences of potential disruptions.
These contingency plans are also required because testing, by its
nature cannot comprehensively address all future combinations of
dates and events. Some uncertainty will remain after testing as to
the ability of code to process future dates, as well as the ability
of remediated systems to work in an integrated fashion with other
systems. In addition, until the year 2000 occurs, no certainty can
be assured with respect to external party preparedness. The
Partnership's contingency plans will take into account the
possibility of multiple system failures, both internal and external,
due to the year 2000. These contingency plans will build upon
existing emergency and business restoration plans. Although no
definitive list of scenarios for this planning has yet been
developed, the events that the Partnership is considering for
planning purposes include increased frequency and duration of
interruptions of the power, computing, financial and communications
infrastructure. Due to the speculative nature of contingency
planning, it is uncertain whether the Partnership's contingency
plans to address failure of external parties or internal systems
will be sufficient to reduce the risk of material impacts on the
Partnership's operations due to year 2000 problems. The Partnership
has completed its risk assessment and contingency planning for its
highest
13
<PAGE>
priority systems. The Partnership will continue to perform
work associated with contingency planning implementation and the
assessment and remediation of lower priority items through the end
of 1999.
The Partnership has identified two reasonably likely worst case
scenarios. The first is the total failure of FPL's transmission
system. Because FPL has provided insufficient responses to the
Partnership's inquiries, the Partnership is compelled to deem this
failure to be reasonably likely. While the Partnership's revenues
will not be adversely affected by FPL's inability to accept the
Facility's output, the Partnership has a contingency plan pursuant
to which it will rent a diesel generator to enable the Facility to
start without regard to the availability of power from FPL. The
other scenario identified by the Partnership is localized telephone
problems due to congestion. The Partnership's contingency plans
call for availability of two-way radios as well as additional
personnel for face-to-face communication, if required.
Notwithstanding the Partnership's efforts, management of the
Partnership is unable to determine whether or not, as a result of
the year 2000, disruptions will occur or whether such disruptions,
if they do occur, will materially impair the ability of the
Partnership to conduct its business.
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
Dispute with FPL
On March 19, 1999, the Partnership filed a complaint against FPL in
the United States District Court for the Middle District of Florida.
The lawsuit stems from a course of action pursued by FPL since March
10, 1999, in which FPL has purported to exercise its dispatch and
control rights under the Power Purchase Agreement in a manner which
the Partnership believes violates the terms of the power sales
agreement. In its complaint, the Partnership charges that such
conduct is deliberately calculated to cause the Partnership to be
unable to meet the requirements to maintain the Facility's status as
a Qualifying Facility under the Public Utility Regulatory Policies
Act of 1978.
The complaint alleges that FPL has taken the position that if the
Facility is off-line for any reason, then FPL is under no obligation
to allow the Facility to reconnect to FPL's system. The complaint
asserts, however, that the Partnership specifically and successfully
negotiated for a contractual right to operate the Facility at 100 MW
("Minimum Load") in order to enable it to cogenerate sufficient
steam to maintain its Qualifying Facility status. While FPL has not
disputed that the Partnership may maintain Minimum Load operations
if the Facility is delivering power when FPL requests the
Partnership to decommit the Facility, the complaint states that FPL
has
14
<PAGE>
claimed absolute discretion to deny the Partnership permission
to reconnect the Facility with FPL's system.
Because the loss of Qualifying Facility status may result in an
event of default under the Power Purchase Agreement, the Partnership
must take action to address this matter.
The complaint asserts causes of action for (i) FPL's breach of the
Power Purchase Agreement, (ii) FPL's anticipatory repudiation of the
Power Purchase Agreement, (iii) breach of the implied covenant of
good faith, fair dealing and commercial reasonableness and (iv) a
declaratory judgment by the court of the rights of the parties under
the Power Purchase Agreement. The Partnership seeks (a) a
declaratory ruling that FPL's actions constitute a breach of the
terms of the Power Purchase Agreement and that the Partnership has
the absolute right to operate the Facility at Minimum Load (except
for reasons of safety or system security) at the rates provided for
in the Power Purchase Agreement, (b) injunctive relief preventing
FPL from further violating the Power Purchase Agreement, (c)
compensatory damages and (d) other relief as the court may deem
appropriate.
Subsequent to the filing of the complaint, FPL reconnected the
Facility to FPL's system on Sunday, March 28, 1999. On April 14,
1999, FPL filed a response to the complaint including a motion to
dismiss two of the four counts raised in the complaint and raised
certain affirmative defenses. FPL has also filed a counterclaim
seeking declaration that FPL has unfettered dispatch rights under
the Power Purchase Agreement. On May 13, 1999, the Partnership
filed its opposition to FPL's motion to dismiss and request for
declaratory judgment.
This summary of the Partnership's complaint against FPL is qualified
in its entirety by the complaint, which accompanied the
Partnership's Current Report on Form 8-K which was filed on March
22, 1999. This summary does not, nor does it purport to, include
all of the material statements and claims made in the complaint, and
has been provided solely for the reader's convenience. This summary
is not intended to be relied upon for any purpose without reference
to the complaint.
Item 5 OTHER INFORMATION
Governmental Approvals
The Partnership has obtained all material environmental permits and
approvals required, as of March 31, 1999, in order to continue
commercial operation of the Facility. Certain of these permits and
approvals are subject to periodic renewal. Certain additional
permits and approvals will be required in the future for the
continued operation of the Facility. The Partnership is not aware
of any technical circumstances that would prevent the issuance of
such permits and approvals or the renewal of currently issued
permits. The Partnership timely filed its application for a Title V
air permit on May 24, 1996. A draft permit has been issued by the
Florida Department of
15
<PAGE>
Environmental Protection. The Partnership
provided comments on the permit and a final permit is expected by
the end of May.
Energy Prices
In September 1997, FPL filed with the Florida Public Service
Commission its projections for its 1997-1999 "as available" energy
costs (in this context, "as available" energy costs reflect actual
energy production costs avoided by FPL resulting from the purchase
of energy from the Facility and other Qualifying Facilities). The
projections filed by FPL are lower for certain periods than the
energy prices specified in the Power Purchase Agreement for energy
actually delivered by the Facility. At other times, the projections
exceed the energy prices specified in the Power Purchase Agreement.
Should FPL's "as available" energy cost projections prove to reflect
actual rates, FPL may elect, pursuant to its dispatch and control
rights over the Facility set forth in the Power Purchase Agreement,
to run the Facility less frequently or at lower loads than if the
Facility's energy prices were lower than the cost of other energy
sources available to FPL. Because capacity payments under the Power
Purchase Agreement ar e not affected by FPL's dispatch of the
Facility and because capacity payments are expected by the
Partnership to cover all of the Partnership's fixed costs, including
debt service, the Partnership currently expects that, if the filed
projections prove to reflect actual rates, such rates and the
resulting dispatch of the Facility will not have a material adverse
effect on the Partnership's ability to service its debt. To the
extent the Facility is not operated by FPL during Caulkins'
processing season (November to June), the Partnership may elect to
run the Facility at a minimum load or shut down the Facility and run
auxiliary boilers to produce steam for Caulkins in amounts required
under the Partnership's steam agreement with Caulkins. The
Partnership has filed a complaint against FPL with respect to the
interpretation of a provision of the Power Purchase agreement
related to this matter. Please see "Legal Proceedings"above. Such
operations may result in decreased net operating income for such
periods. T he Partnership expects that the decrease, if any, will
not be material. For the three months ended March 31, 1999, FPL
requested the Partnership to decommit the Facility numerous times
and the Partnership typically exercised its rights to operate at
minimum load (100MW) during such decommit requests. The
Partnership's election to operate at minimum load has not had a
material impact on the Partnership or its financial condition
although energy delivered during such operations is sold at reduced
prices. Based upon FPL's projections, the Partnership does not
expect that, if the filed projections prove to reflect actual rates,
its dispatch rate will change materially during the period covered
by such projections.
Debt Service Reserve Account
As permitted by the Partnership's financing arrangements, on August
19, 1998, the Partnership requested that the balance in the Debt
Service Reserve Account be reduced to the Debt Service Reserve
Account Required Balance by reducing the Debt Service Reserve Letter
of Credit. On January 11, 1999, the reduction was approved. The
Debt Service Reserve Account now contains the $29,609,840 Debt
Service Reserve Letter of
16
<PAGE>
Credit and $12,500,000 of cash (available
only as a debt service reserve for the Tax Exempt Bonds).
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K:
The Partnership filed Reports on Form 8-K on March 22, and March 29,
1999, regarding the FPL litigation.
b) Exhibits:
Exhibit No. Description
3.1 Certificate of Incorporation of Indiantown
Cogeneration Funding Corporation.*
3.2 By-laws of Indiantown Cogeneration Funding Corporation.*
3.3 Certificate of Limited Partnership of Indiantown Cogeneration,
L.P.*
3.4 Amended and Restated Limited Partnership Agreement of Indiantown
Cogeneration, L.P., among Palm Power Corporation, Toyan Enterprises
and TIFD III-Y Inc.*
3.5 Form of First Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P.*
4.1 Trust Indenture, dated as of November 1, 1994, among Indiantown
Cogeneration Funding Corporation, Indiantown Cogeneration, L.P., and
NationsBank of Florida, N.A., as Trustee, and First Supplemental
Indenture thereto.**
4.2 Amended and Restated Mortgage, Assignment of Leases, Rents,
Issues and Profits and Security Agreement and Fixture Filing among
Indiantown Cogeneration, L.P., as Mortgagor, and Bankers Trust
Company as Mortgagee, and NationsBank of Florida, N.A., as
Disbursement Agent and, as when and to the extent set forth therein,
as Mortgagee with respect to the Accounts, dated as of November 1,
1994.**
4.3 Assignment and Security Agreement between Indiantown
Cogeneration, L.P., as Debtor, and Bankers Trust Company as Secured
Party, and NationsBank of Florida, N.A., as Disbursement Agent and,
as when, and to the extent set forth therein, a Secured Party with
respect to the Accounts, dated as of November 1, 1994.**
17
<PAGE>
10.1.1 Amended and Restated Indenture of Trust between Martin
County Industrial Development Authority, as Issuer, and NationsBank
of Florida, N.A., as Trustee, dated as of November 1, 1994.**
10.1.2 Amended and Restated Authority Loan Agreement by and between
Martin County Industrial Development Authority and Indiantown
Cogeneration, L.P., dated as of November 1, 1994.**
10.1.3 Letter of Credit and Reimbursement Agreement among
Indiantown Cogeneration, L.P., as Borrower, and the Banks Named
Therein, and Credit Suisse, as Agent, dated as of November 1,
1994.**
10.1.4 Disbursement Agreement, dated as of November 1, 1994, among
Indiantown Cogeneration, L.P., Indiantown Cogeneration Funding
Corporation, NationsBank of Florida, N.A., as Tax-Exempt Trustee,
NationsBank of Florida, N.A., as Trustee, Credit Suisse, as Letter
of Credit Provider, Credit Suisse, as Working Capital Provider,
Banque Nationale de Paris, as Debt Service Reserve Letter of Credit
Provider, Bankers Trust Company, as Collateral Agent, Martin County
Industrial Development Authority, and NationsBank of Florida, N.A.,
as Disbursement Agent.**
10.1.5 Revolving Credit Agreement among Indiantown Cogeneration,
L.P., as Borrower, and the Banks Named Therein, and Credit Suisse,
as Agent, dated as of November 1, 1994.**
10.1.6 Collateral Agency and Intercreditor Agreement, dated as of
November 1, 1994, among NationsBank of Florida, N.A., as Trustee
under the Trust Indenture, dated as of November 1, 1994, NationsBank
of Florida, N.A., as Tax-Exempt Trustee under the Tax Exempt
Indenture, dated as of November 1, 1994, Credit Suisse, as letter of
Credit Provider, Credit Suisse, as Working Capital Provider, Banque
Nationale de Paris, as Debt Service Reserve Letter of Credit
Provider, Indiantown Cogeneration, L.P., Indiantown Cogeneration
Funding Corporation, Martin County Industrial Development Authority,
NationsBank of Florida, N.A., as Disbursement Agent under the
Disbursement Agreement dated as of November 1, 1994, and Bankers
Trust Company, as Collateral Agent.**
10.1.7 Amended and Restated Equity Loan Agreement dated as of
November 1, 1994, between Indiantown Cogeneration, L.P., as the
Borrower, and TIFD III-Y Inc., as the Equity Lender.**
10.1.8 Equity Contribution Agreement, dated as of November 1, 1994,
between TIFD III-Y Inc. and NationsBank of Florida, N.A., as
Disbursement Agent.**
18
<PAGE>
10.1.9 GE Capital Guaranty Agreement, dated as of November 1, 1994,
between General Electric Capital Corporation, as Guarantor, and
NationsBank of Florida, N.A., as Disbursement Agent.**
10.1.11 Debt Service Reserve Letter of Credit and Reimbursement
Agreement among Indiantown Cogeneration, L.P., as Borrower, and the
Banks Named Therein, and Banque Nationale de Paris, as Agent, dated
as of November 1, 1994.**
10.2.18 Amendment No. 2 to Coal Purchase Agreement, dated as of
April 19, 1995.***
10.2.19 Fourth Amendment to Energy Services Agreement, dated as of
January 30, 1996.*****
21 Subsidiaries of Registrant*
27 Financial Data Schedule. (For electronic filing purposes
only.)
99 Copy of Registrants' press release dated January 3, 1996.****
99.1 Copy of Registrants' complaint against FPL filed March 19,
1999.******
* Incorporated by reference from the Registrant Statement
on Form S-1, as amended, file no. 33-82034 filed by the
Registrants with the SEC in July 1994.
** Incorporated by reference from the quarterly report
on Form 10-Q, file no. 33-82034 filed by the Registrants
with the SEC in December 1994.
*** Incorporated by reference from the quarterly report
on Form 10-Q, file no. 33-82034 filed by the Registrants
with the SEC in May 1995.
**** Incorporated by reference from the current report
on Form 8-K, file no. 33-82034 filed by the Registrants
with the SEC in January 1996.
***** Incorporated by reference from the quarterly report
on Form 10-Q, file no. 33-82034 filed by the Registrants
with the SEC in May 1996.
******Incorporated by reference from the current report
on Form 8-K, file no.33-82034 filed by the Registrants
with the SEC in March 1999.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INDIANTOWN COGENERATION, L.P.
(Co-Registrant)
Date: May 17, 1999 /s/ John R. Cooper
John R. Cooper
Vice President and
Chief Financial Officer
INDIANTOWN COGENERATION FUNDING
CORPORATION
(Co-Registrant)
Date: May 17, 1999 /s/ John R. Cooper
John R. Cooper
Vice President and
Chief Financial Officer
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1
<CAPTION>
Exhibit 27: Financial Data Schedule
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 28,728,890
<SECURITIES> 0
<RECEIVABLES> 11,503,654
<ALLOWANCES> 0
<INVENTORY> 681,672
<CURRENT-ASSETS> 42,028,831
<PP&E> 650,736,649
<DEPRECIATION> 54,231,068
<TOTAL-ASSETS> 725,467,121
<CURRENT-LIABILITIES> 30,774,608
<BONDS> 601,249,000
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 725,467,121
<SALES> 35,751,015
<TOTAL-REVENUES> 35,751,015
<CGS> 12,560,664
<TOTAL-COSTS> 15,202,062
<Other-Costs> 2,641,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,422,744
<INCOME-PRETAX> 6,517,392
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,517,392
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<NET-INCOME> 6,517,392
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